Charles Schwab Investment Management (CSIM) has already turned the world of ETF commission free trading upside down and now it wants to shake things up even more.
The San Francisco, CA-based company unveiled six new Schwab Fundamental Index ETFs will begin trading on August 15. Along with Schwab's other 15 proprietary ETFs, these new core funds will be available for purchase commission-free online in Schwab accounts.
The new ETFs, like Schwab's (NYSE:SCHB) fundamentally weighted mutual funds, are linked to the Russell Fundamental Index Series, which is based on methodology developed by Rob Arnott and Research Affiliates.
Since launching its first Fundamental Index mutual funds in 2007, Schwab grown assets to $4.5 billion as of June 30, 2013.
Traditional market cap weighted indexes, like the S&P 500 (NYSEARCA:VOO) and Nasdaq-100 (NASDAQ:QQQ), weight stocks by their market size whereas fundamentally weighted indexes screen and weight companies according to financial metrics like sales, cash flow, and dividends/buybacks.
"The world is not black and white when it comes to indexing," said Marie Chandoha, president of CSIM. "We believe the systematic approach inherent in fundamentally weighted methodologies, when used alongside cap weighted strategies, enables investors to diversify and balance their exposure."
The new ETFs and annual operating expense ratios (OER) are as follows:
--Schwab Fundamental U.S. Broad Market Index ETF (FNDB) - Seeks to track the Russell Fundamental U.S. Index; OER - 0.32%
--Schwab Fundamental U.S. Large Company Index ETF (FNDX) - Seeks to track the Russell Fundamental U.S. Large Company Index; OER - 0.32%
--Schwab Fundamental U.S. Small Company Index ETF (FNDA) - Seeks to track the Russell Fundamental U.S Small Company Index; OER - 0.32%
--Schwab Fundamental International Large Company Index ETF (FNDF) - Seeks to track the Russell Fundamental Developed ex-U.S. Large Company Index; OER - 0.32%
--Schwab Fundamental International Small Company Index ETF (FNDC) - Seeks to track the Russell Fundamental Developed ex-U.S. Small Company Index; OER - 0.46%
--Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE) - Seeks to track the Russell Fundamental Emerging Markets Large Company Index; OER - 0.46%
All six ETFs will be added to Schwab ETF OneSource brokerage platform.
Schwab's latest invasion takes direct aim at ETF providers like InvescoPowerShares, which offers its own lineup of 15 FTSE RAFI fundamentally weighted ETFs.
Expense ratios for all Schwab Fundamental ETFs in the same asset class are cheaper compared to the PowerShares FTSE RAFI Emerging Markets Portfolio (NYSEARCA:PXH), FTSE RAFI Developed Markets ex-U.S. Portfolio (NYSEARCA:PXF), FTSE RAFI US 1000 Portfolio (NYSEARCA:PRF), and Fundamental Pure Small Core Portfolio (NYSEARCA:PXSC).
According to the latest Independent Advisor Outlook Study by Schwab Advisor Services, 59% of its RIA clients currently invest in fundamentally weighted products, and roughly one in five plan to invest more in the near term. Additionally, the research shows that 34% of RIAs believe fundamentally weighted products can serve as an effective complement to market-cap weighted and actively managed products.
"We're here to help advisors and investors alike recognize that Fundamental Index funds - whether ETFs or mutual funds - are a thoughtful way to gain broad industry exposure, right alongside their market cap-weighted counterparts," said Chandoha.
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